AdWords in Africa – South African case breaks new ground

There was great excitement recently when a South African court handed down what is believed to be Africa’s first AdWords (keywords) decision. Unsurprisingly, the decision of Judge Nicholls of the Gauteng High Court in Cochrane Steel Products Pty Ltd v M-Systems Group (Pty) Ltd (as yet unreported) has been the subject of much scrutiny and debate.

The facts were fairly standard. Cochrane – which is apparently a market leader in the area of fencing – sold a product under the trademark CLEARVU. M-Systems, a competitor, sold a product called M-Secure. M-Systems regularly bid on AdWords such as ‘clearvu’, ‘clear vu’ and ‘clear-vu’.

This meant that people searching for ClearVu on Google were exposed to advertisements for M-Secure. The practice angered Cochrane, for reasons that the judge summed up as follows: “To add insult to injury, to ensure that the applicant’s (Cochrane’s) advertisement has a higher ranking and appears in a preferable position to that of the respondent (M-Systems), the applicant has to raise the price-per-click for the use of its own brand name... the applicant is, it asserts, doubly prejudiced.”

However, what sets Cochrane apart is that Cochrane did not sue for trademark infringement, as the CLEARVU mark was unregistered. Although there was a pending application to register CLEARVU, this was being opposed by M-Secure in what Cochrane described as a bad-faith attempt to ensure that it could do nothing about the AdWords usage. If that was indeed M-Secure’s plan, it failed because Cochrane sued for passing off: an action that requires reputation, a likelihood of confusion and damage.

Normally in passing-off cases, the first question is whether the party claiming passing off can establish that its trademark enjoys a sufficient reputation. However, in this case the judge decided to start with the issue of whether there was any likelihood of confusion. This gave him the opportunity to examine AdWords cases that have been decided in other jurisdictions, albeit in the context of trademark infringement.

Foreign case law

The decisions that the judge considered will be familiar to many readers. In Google France SARL v Louis Vuitton Malletier SA (2010, ECR 1-2417) the European Court of Justice (ECJ) made several findings about the keyword usage of a registered trademark. First, Google – the seller of the keyword – was not liable for trademark infringement because its use was simply internal and invisible. Second, the buyer of the keyword was not liable either, as long as it was clear to a reasonably astute internet user that there was no connection between the goods or services being advertised and the owner of the registered trademark.

In Interflora Inc v Marks and Spencer plc (2013, EWHC 1291 (Ch)) a UK court ruled on Marks & Spencer’s use of the keyword ‘interflora’ after receiving guidance from the ECJ. The court held that Marks & Spencer had failed to make it clear to a reasonably proficient internet user that the advertisements for its flower delivery service which popped up in response to a search for ‘interflora’ were not connected with the company Interflora. This finding seems to have been influenced by the fact that it is apparently well known in the United Kingdom that Interflora has links with several large retailers, making it likely that people might assume that Marks & Spencer was an Interflora provider.

In the UK case of Cosmetic Warriors Ltd v Amazon.co.uk Ltd (2014, EWHC 181 (Ch)) the court held that Amazon had not done enough to make it clear to users that the goods that they were directed to on Amazon’s site in response to a search for the term ‘lush’ were similar to those of the company Lush – a well-known supplier of cosmetics and bath products – but were not in fact Lush products.

Finally, in the lesser-known New Zealand case of Intercity Group (NZ) Ltd v Nakedbus NZ Limited (2014, NZHC 124), bus operator Intercity sued Nakedbus for trademark infringement because its rival had used ‘intercity’ as a keyword. The court held that trademark infringement had taken place, seemingly because there was visible use of the term in the Nakedbus advertisement.

These various decisions are all underpinned by the belief that a trademark’s function is to indicate origin – which means that if there is no confusion as to origin, there is no infringement. They are also premised on the fact that most people know how things work on the Internet, and that a reasonably astute user is not confused when he or she sees advertisements for competing products pop up in response to a search for a particular brand.

Correct cause of action

Nicholls felt that this thinking applies equally to a case of passing off, where likelihood of confusion is a requirement, even if it is sometimes characterised as a misrepresentation. The judge’s decision may be summed up as follows: “In this matter a consumer who searches for ‘ClearVu’ is confronted with a multiplicity of suppliers. No reasonable consumer could possibly be under the impression that all of them relate directly to the applicant. The reaction to these might well be irritation or indifference but it is highly unlikely that the reasonably observant consumer would be confused and deceived into thinking they were all the advertisements of the applicant. To reiterate the sentiments in foreign jurisdictions, Adwords are a familiar feature of the internet and consumers are used to distinguishing them from natural search results.”

Cochrane’s lawyers seemed to anticipate this objection, because they added another, more unusual cause of action – that of leaning on. This is a cause that some well-known South African legal academics have suggested exists to protect the advertising value of a trademark, although it does not require proof of confusion. It could be described as passing off ‘lite’.

The judge accepted that in South Africa, passing off is regarded as simply one example of the wide and elastic tort of unlawful competition, something that can conceivably cover any competitive action that oversteps the mark. However, he pointed out that the South African courts have also made it clear that they do not look kindly on attempts to extend passing off through the law of unlawful competition. As a court said in one particular decision, trademark owners cannot create ‘impermissible monopolies’ by employing “some general notion of unlawful competition to create ersatz passing-off with requirements less exacting than those required by the common law”. Or as another South African judge said, unlawful competition must not be used as “a ragbag and often forlorn alternative” to passing off.

Thus, no passing off had taken place (and there was no need even to consider reputation); neither was there any leaning on. M-System’s keyword usage of the various forms of ‘clearvu’ was therefore lawful.

Repercussions

The decision has already attracted considerable comment. The reaction in the general media has been positive, with publication Fin24 commenting that: “South Africa’s first ever Google AdWords court case concluded last week with a ruling that gives competing businesses the green light to bid on each other’s trademarks as keywords.” The lawyers who acted for M-Systems were quoted as follows: “This is a good ruling because it promotes choice and competition which are good for the consumer, especially when there is no likelihood of confusion which the judge found to be the case. From our perspective we are glad that South Africa and (M-Systems) now have clarity on the position, bringing our law into line with international decisions.”

However, other lawyers have raised various issues. One interesting aspect of the case is that Cochrane applied to amend its court papers to include an allegation that, besides the AdWords usage, there was also a certain amount of visible use of its trademark in M-Secure’s ads. The application for amendment was refused, seemingly because it was made too late. Some have questioned whether it is possible that a different result would have been reached if the amendment had been allowed, especially bearing in mind the decision in Intercity v Nakedbus.

Some have argued that the law of unlawful competition is wide enough to encompass things such as piggybacking and possibly even the diversion of custom that goes with use of a competitor’s trademark as a keyword.

Others have wondered whether the reasonably astute internet user test is the appropriate one to use in a developing country. There have been trademark cases in South Africa where the courts, when deciding on the likelihood of confusion, have taken account of the fact that a significant percentage of consumers might be illiterate or semi-literate.

In addition, there have been questions over whether the judge was right to place so much emphasis on the origin-indicating function of a trademark when there have been decisions suggesting that a trademark has other functions (eg, advertising and investment). In Interflora v Marks and Spencer the court discussed these issues, suggesting that keyword use might compromise a trademark’s investment function where that use substantially interferes with the trademark owner’s use of its mark to acquire or preserve a reputation capable of attracting consumers and retaining their loyalty. In the leading South African case, Laugh It Off Promotions CC v SA International (Finance) BV t/a Sabmark International has (2006, 1 SA 144 (CC)), the Constitutional Court recognised that a trademark has more than one function and made this comment about the section of the Trademarks Act which deals with dilution: “It aims at more than safeguarding a product’s ‘badge of origin’ or its ‘source-denoting’ function … the section strives to protect the unique identity and reputation of a registered trade mark… both of these attributes underpin the economic value that resides in the mark: advertising prowess or selling power.”

It has not gone unnoticed in South Africa that the UK Court of Appeal has recently ordered a re-trial in Interflora v Marks and Spencer, on the basis that there were errors in law. Further developments are awaited with much interest.

Conclusion

It is no surprise that the judge in this case looked so closely at developments in the United Kingdom and the European Union. South Africa is still – certainly insofar as trademark law is concerned – a UK law country, which means that developments that occur there are monitored closely; as are developments that take place in the extended family of the European Union. The South African Trademarks Act looks almost confusingly similar to the UK act and the EU directive. As for court decisions, South African courts follow UK and EU decisions extremely closely. Obvious examples include Sabel BV v Puma AG, Rudolf Dassler Sport (1998, RPC 199 (ECJ)) – which explained the need for a global assessment between trademarks – as well as various cases dealing with the origin function of a trademark, such as Anheuser-Busch Inc (Case-245/02, November 16 2004), Arsenal Football Club v Reed (2003, RPC 144) and R v Johnstone (2003, UKHL 28). Having said this, there have also been aberrations and flashes of independence by South African courts. However, there is insufficient space to deal with these here.

South African IP decisions are, in turn, monitored closely by lawyers and authorities in other African countries, especially those that could be regarded as UK law countries. This is because South African IP jurisprudence is more extensive and arguably more advanced than that in many other African countries. One reason for this is the fact that there has traditionally been far more IP activity in South Africa than in other African countries. Another reason might be the fact that South Africa has, at most times, had judges who could be regarded as IP specialists, the most recent being the now-retired Appeal Court judge, Louis Harms. This confidence in South African IP jurisprudence is reflected in the fact that so many international companies channel their African IP work through South African-based law firms.

All of this suggests that there is a reasonably good chance that the approach adopted in Cochrane v M-Systems will be followed elsewhere in Africa. Companies with interests in the continent may want to plan accordingly.